Apple shares rise on Citi recommendation

Shares of Apple Inc. received a slight boost Monday morning after investment bank Citigroup added the company to its "Top Picks Live" list and reiterated a Buy rating on the badly beaten stock.

"Top Picks Live is a dynamic list of CIRs highest conviction ideas through calendar year-end which was introduced in January 2008," analyst Rich Gardner explained in a research note to clients. "Apple is the first addition to the list by the PC & Enterprise Hardware team."

In his note, Gardner vouched his belief that the affects of much publicized first-quarter iPhone and iPod production cuts (1, 2) are already reflected in the company's share price, which has fallen some 37 percent since the start of the new year.

"Several sell side analysts have recently cited cuts to March quarter build plans for both iPod and iPhone," he wrote. "We believe that these cuts did occur and that March quarter iPod and iPhone build plans are both below the current sell-side consensus."

For the quarter, the analyst said checks now suggest an iPod build plan of 9 million units will ultimately lead to sales of 10 million revenue units, slightly below sell-side consensus estimates of 10.9 million units. Similarly, iPhone build plan checks imply 1.0 to 1.2 million units, about half a million units shy of the 1.7 million sell-side consensus estimates.

"While March quarter iPod and iPhone build plans are below sell-side consensus numbers, we believe that this is well understood and expected by the buy-side," Gardner said in supporting his Buy recommendation. "At this point, we do not believe 10 million iPod revenue units and 1-1.5 million iPhone units during the March quarter would constitute a surprise to investors. In addition, we believe that iTunes movie rentals will provide an incentive for current iPod users to upgrade to a video-capable iPod as rental content on the site grows throughout the year."

The analyst blames most of the iPod's perceived under-performance in the US market as of late on poor uptake of the the entry level iPod shuffle, which hasn't seen a material revision in well over a year.

"While virtually 100 percent of the unit shortfall was in the low-end iPod Shuffle, allowing Apple to beat consensus iPod revenue despite the unit shortfall, the Street was rightfully concerned about the lack of unit growth," he wrote. "We believe the unit shortfall reflected the lack of a compelling update to the Shuffle product last Fall; the Shuffle simply was not the compelling 'stocking stuffer' this year that it was last year."

Going forward, Gardner said Apple will have to provide compelling reasons for US iPod users to upgrade in order to keep the domestic business from declining. However, the analyst had a slightly different view of the company's scaled back iPhone orders.

"While iPhone shipments are likely to be weak during the March quarter, we believe this partly reflects channel inventory draw down ahead of the launch of a 3G iPhone within 1-1.5 quarters," he explained. "The introduction of 3G along with price cuts and additional carrier relationships in Europe should give investors increased confidence in Apples stated target of 10 million iPhone unit shipments during calendar year 2008.

Consumer spending data is coming through the pipes this week. Will it be good news? Or will it be a disaster. It's pretty dumb to be buying AAPL at these prices, since it should be priced in between $85 and $95 in light of current and near-term economic conditions.

Consumer spending data is coming through the pipes this week. Will it be good news? Or will it be a disaster. It's pretty dumb to be buying AAPL at these prices, since it should be priced in between $85 and $95 in light of current and near-term economic conditions.

That's what you think. $85 is WAY too low, I can't imagine it hitting that point unless a meteor hits Cupertino.

That's what you think. $85 is WAY too low, I can't imagine it hitting that point unless a meteor hits Cupertino.

So how much have you made shorting AAPL?

Um if you still haven't heard we are in a recession right now...all retailers are suffering and Apple will suffer in the coming months too. There just aren't enough fanboys to keep sales afloat. Regular people who buy ipods every now and then or switchers are going to delay their purchases. Apple is going to keep dropping if the economic climate keeps deteriorating. Gadget companies suffer in recessions.

I agee the stock will drop below 100 this year. Then it will be a good time to buy.

Um if you still haven't heard we are in a recession right now...all retailers are suffering and Apple will suffer in the coming months too. There just aren't enough fanboys to keep sales afloat. Regular people who buy ipods every now and then or switchers are going to delay their purchases. Apple is going to keep dropping if the economic climate keeps deteriorating. Gadget companies suffer in recessions.

I agee the stock will drop below 100 this year. Then it will be a good time to buy.

I'm aware of the state of the US (and world) economy. I just don't agree.

Consumer spending data is coming through the pipes this week. Will it be good news? Or will it be a disaster. It's pretty dumb to be buying AAPL at these prices, since it should be priced in between $85 and $95 in light of current and near-term economic conditions.

Apple appears to be in pretty good shape to weather a recession. Huge amounts of cash on hand, products diversified among various electronics/computer market segments, and a devoted customer base. If they play their cards right (and they seem to have been doing so lately), they could come out of the recession having picked up top talent and way ahead in R&D.

I'm just not sure why anyone would sell much, or what other companies they think would be a better bet in the long term.

Um if you still haven't heard we are in a recession right now...all retailers are suffering and Apple will suffer in the coming months too. There just aren't enough fanboys to keep sales afloat. Regular people who buy ipods every now and then or switchers are going to delay their purchases. Apple is going to keep dropping if the economic climate keeps deteriorating. Gadget companies suffer in recessions.

I agee the stock will drop below 100 this year. Then it will be a good time to buy.

Options expiry and hedge fund repemptions both happen Friday. Options Max Pain for AAPL is at 135. That's the price at which options managers would have to pay out the least amount of money. AAPL happens to be doing very well today, exceeded only by RIMM on this chart:

It wouldn't be a surprise if AAPL goes to 135 this week but what happens after that is anyone's guess.

Options expiry and hedge fund repemptions both happen Friday. Options Max Pain for AAPL is at 135. That's the price at which options managers would have to pay out the least amount of money. AAPL happens to be doing very well today, exceeded only by RIMM on this chart:

It wouldn't be a surprise if AAPL goes to 135 this week but what happens after that is anyone's guess.

Im amazed RIMM is still going strong, wont be long till that ship sinks.